Another step forward for proposed tonnage tax regime

The recent release by the National Treasury of a discussion document on a proposed tonnage tax regime for South African shipping companies has been welcomed by the industry. South Africa must introduce a tonnage tax regime if they want to attract shipping companies to the country, says Tim Desmond, Garlicke and Bousfield director of tax and commercial departments. “South Africa at the moment only has one vessel used for international trade on the ship register. This is down from a high of 52 such vessels in the 1970s. Introducing tonnage tax – usually regarded as a preferential tax regime – will attract shipping companies to the country.” Other issues being addressed as part of the tonnage tax initiative relate to the ranking of mortgage claims on the judicial sale of a ship, labour law provisions in respect of ships’ crews, technical maritime legislation and an official maritime policy. According to Desmond, tonnage tax regimes have been adopted by a number of countries around the world. “Such regimes essentially tax shipping companies based on a notional profit, calculated according to the number and size of ships operated. They operate in place of the normal corporate income tax regime.” The National Treasury has already investigated the regimes of several countries and has proposed the “Dutch” model to be the most suitable for South Africa. Countries that have adopted this model include Ireland, Germany, Belgium and the United Kingdom. Desmond said the decline in shipping in South Africa was due to the relatively unattractive business environment for shipping companies – in particular the tax environment is regarded as unattractive incomparison to those in other jurisdictions. “South Africa is very dependent on maritime trade with about 1220 deep sea trading vessels regularly calling at our ports. These vessels are all foreign registered and crewed and therefore not contributing to the country’s wealth. Introducing a tonnage tax regime will not only turn the declining shipping industry around, but also have major cost implications,” said Desmond.